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Circuit City Posts Worse-Than-Expected Loss, Withdraws Forecast

A Circuit City store in Mount Laurel, New Jersey.
Mel Evans
A Circuit City store in Mount Laurel, New Jersey.

Consumer electronics retailer Circuit City Stores posted a worse-than-expected quarterly loss and withdrew its earnings forecast Wednesday, citing a drop in television sales and an uncertain economic environment.

Circuit City's results suffered from similar weaknesses reported Tuesday by larger rival Best Buy Co. Inc., which had cast new doubts on U.S. consumer spending trends and sent both their shares lower. Circuit City shares edged up nearly 1 percent in afternoon trading after dropping 3 percent on Tuesday. Analysts said the results were not surprising, and investors might have already taken into account the retailer's woes based on Best Buy's report.

"Circuit City is clearly struggling with the challenging consumer electronics environment and is, characteristically, executing less well than Best Buy," Bernstein analyst Colin McGranahan said in a client note. During the quarter, weakness in projection, traditional and plasma televisions and in MP3 digital music players more than offset strength in categories such as large LCD TVs, notebook personal computers and video gaming products.

Circuit City reported a loss of $54.6 million, or 33 cents a share, for the first quarter ended on May 31, compared with year-earlier net income of $6.4 million, or 4 cents per share. Analysts on average had been expecting a loss of 32 cents a share, according to Reuters Estimates.

Net sales declined 4.3 percent to $2.49 billion from $2.6 billion, but still exceeded analysts' forecasts of $2.44 billion.


Unpredictable Market

The company said it could not predict when the market would improve and withdrew previous earnings forecasts. "Combined with an uncertain macroeconomic environment, for the time being, it is difficult to project sales and earnings performance for the balance of the fiscal year," Chief Executive Philip Schoonover said in a statement.

Circuit City, which has about 46,000 employees, is in the midst of a multiyear effort to overhaul its business after losing market share to Best Buy and facing competition from discounters such as Wal-Mart Stores Inc.

Wal-Mart, the world's largest retailer, has been pursuing electronics aggressively, expanding its selection of high-end products like flat-panel TVs to lure customers into its stores and then cutting prices to gain market share.

Last month, Circuit City said it planned to shift some 640 store managers and trim its headquarters staff by about 200 people, the latest step in its turnaround plan.

That comes on the heels of its announcement earlier this year that it would close stores and replace 3,400 employees with lower-paid workers.

The company said on Wednesday that some of these changes led to "significant volatility" that is likely to continue for several months.

Shares of Circuit City were up 14 cents at $16.21 in afternoon New York Stock Exchange trade. The stock has fallen about 15 percent so far this year. That compares with an 8 percent decline for Best Buy and an 8 percent rise in the S&P 500 index.

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